SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2004
Commission file number 0-19343
VSI LIQUIDATION CORP.
(Exact name of Registrant as specified in its charter)
Delaware 34-1493345
(State of incorporation) (I.R.S. Employer Identification No.)
2170 Piedmont Road, N.E.
Atlanta, Georgia 30324
(404) 888-2750
(Address and telephone number of
principal executive offices)
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No____
Indicate by check mark whether the registrant is an accelerated filer (as
determined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
As of December 31, 2004, 7,906,617 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
PART 1 - - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VSI LIQUIDATION CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 JUNE 30, 2004
-------------------- -------------------
(UNAUDITED)
ASSETS
Cash $ 501,043 $ 497,264
Income tax refund receivable 55,689 60,000
Cash in escrow account 596,861 703,099
-------------------- -------------------
Total assets $ 1,153,593 $ 1,260,363
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 181,390 $ 231,411
Deferred income taxes 257,582 296,893
-------------------- -------------------
Total liabilities 438,972 528,304
-------------------- -------------------
Stockholders' equity:
Common stock, $.01 par value; authorized 12,000,000
shares, issued and outstanding 7,906,617 shares 79,066 79,066
Paid-in capital 848,044 848,044
Retained earnings (212,489) (195,051)
-------------------- --------------------
714,621 732,059
-------------------- --------------------
Total liabilities and stockholders' equity $ 1,153,593 $ 1,260,363
==================== ====================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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VSI LIQUIDATION CORP.
CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
----------------------------- -----------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Interest income $ 1,966 $ 1,006 $ 3,340 $ 2,132
Selling, general and administrative expenses 17,935 14,088 30,778 29,585
------------- ------------- ------------- -------------
Income (loss) before income taxes (15,969) (13,082) (27,438) (27,453)
Income tax (benefit) (6,000) (5,000) (10,000) (10,000)
------------- ------------- ------------- -------------
Net income (loss) $ (9,969) $ (8,082) $ (17,438) $ (17,453)
============= ============= ============= =============
Net earnings (loss) per common share:
Basic $ (.00) $ (.00) $ (.00) $ (.00)
============= ============= ============= =============
Diluted $ (.00) $ (.00) $ (.00) $ (.00)
============= ============= ============= =============
Weighted average shares used in computation:
basic and diluted 7,906,617 7,906,617 7,906,617 7,906,617
============= ============= ============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
VSI LIQUIDATION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED DECEMBER 31
------------------------------
2004 2003
------------- -------------
Cash flows from operating activities:
Net loss $ (17,438) $ (17,453)
Adjustments to reconcile net income to net cash flows from
operating activities:
Deferred income taxes (39,311) (54,952)
(Increase) decrease in assets:
Income tax refund receivable 4,311 213,000
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (50,021) 14,562
------------- -------------
Cash provided (used) by operating activities (102,459) 155,157
------------- -------------
Cash flows from investing activities:
Change in escrow account 106,238 (261)
------------- -------------
Cash provided (used) by investing activities 106,238 (261)
------------- -------------
Cash flows from financing activities: - -
------------- -------------
Increase (decrease) in cash 3,779 154,896
Cash at beginning of period 497,264 423,215
------------- -------------
Cash at end of period $ 501,043 $ 578,111
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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VSI LIQUIDATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Reference is made to the annual report on Form 10-K filed September 17,
2004 for the fiscal year ended June 30, 2004.
The financial statements for the periods ended December 31, 2004 and 2003
are unaudited and include all adjustments which, in the opinion of
management, are necessary for a fair statement of the results of operations
for the periods then ended. All such adjustments are of a normal recurring
nature. The results of the Company's discontinued operations for any
interim period are not necessarily indicative of the results of the
Company's discontinued operations for a full fiscal year.
2. INCOME PER COMMON SHARE:
Basic earnings per common share are computed by dividing net income for the
period by the weighted average number of shares of common stock outstanding
for the period. Diluted earnings per common share do not vary from basic
earnings per share for any of the periods presented because there were no
dilutive potential shares of common stock outstanding. The dilutive effect
of outstanding potential shares of common stock is computed using the
treasury stock method.
3. SALE OF SUBSTANTIALLY ALL ASSETS AND ASSUMPTION OF SUBSTANTIALLY ALL
LIABILITIES OF THE COMPANY:
On September 8, 1998, the Company entered into a Second Amended and
Restated Asset Purchase Agreement (the "Purchase Agreement") whereby
essentially all assets of the Company would be sold to, and substantially
all liabilities of the Company would be assumed by, HydroChem Industrial
Services, Inc. ("HydroChem"). The purchase price for these assets and
liabilities was approximately $30.0 million, adjusted for increases or
decreases in net assets after June 30, 1998. This transaction closed on
January 5, 1999, and was effective as of January 1, 1999. Costs totaling
$1.3 million were incurred by the Company in connection with the sale. $4.0
million of the proceeds were placed in escrow to secure and indemnify
HydroChem for any breach of the Company's covenants and for any
environmental liabilities. Escrow funds were released over the three year
period following the closing. The remaining escrow balance of approximately
$597,000 at December 31, 2004, to the extent not needed to indemnify
HydroChem, will also be released when the Company can provide certain
environmental assurances to HydroChem, expected to be sometime in 2006.
The Company changed its name from Valley Systems, Inc. to VSI Liquidation
Corp. after the closing of this transaction, and will not have any business
operations other than those associated with the winding up and dissolution
of the Company, including distribution of any escrow funds released to the
Company. After the closing, the Company used approximately $5.5 million of
the proceeds of the sale to redeem the outstanding shares of Series C
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Preferred Stock, approximately $380,000 to redeem outstanding employee
stock options and approximately $165,000 to pay retention bonuses to
certain officers and employees. The Company also paid a liquidating
dividend of $16.8 million ($2.13 per common share) to common stockholders
from the proceeds of the sale. Additional liquidating dividends of
approximately $1.2 million ($.15 per common share), $790,000 ($.10 per
common share) and $950,000 ($.12 per share) were paid in fiscal February
2000, 2001 and 2002 respectively.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS:
Forward-looking statements in this Form 10-Q are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. Potential
risks and uncertainties include, but are not limited to, the possibility that
HydroChem will successfully assert claims against funds held in the escrow
account, the possibility that the costs of winding up the Company's affairs
could exceed the Company's projections and general business and economic
conditions.
RESULTS OF OPERATIONS:
Three months and six months ended December 31, 2004 as compared to the three
months and six months ended December 31, 2003:
As discussed in the notes to the financial statements, effective January 1, 1999
substantially all assets of the Company were sold to, and substantially all
liabilities were assumed by, HydroChem. Operations for the three months and six
months ended December 31, 2004 and December 31, 2003 consisted only of
transactions winding down the operations of the Company. The Company will not
have any business operations in the future other than those associated with the
winding up and dissolution of the Company, including distribution of any escrow
funds released to the Company.
LIQUIDITY AND CAPITAL RESOURCES:
On January 5, 1999, the Company completed the sale of substantially all of its
operating assets and the operating assets of its wholly-owned subsidiary, Valley
Systems of Ohio, Inc. ("VSO"), to HydroChem, pursuant to the Purchase Agreement,
for approximately $30.0 million in cash, of which $26.0 million was payable
immediately and $4 million was deposited into an escrow account to secure
certain indemnification and other rights under the Purchase Agreement, and the
assumption of the Company's and VSO's bank debt and certain other liabilities.
Of the $26.0 million received at closing, after payment or making reasonable
provision for the payment of all known and anticipated liabilities and
obligations of the Company, payment of approximately $5.5 million to repurchase
all of the 55,000 shares of the Company's outstanding Series C Preferred Stock
held by Rollins Holding Company, Inc., payment of approximately $380,000 to
redeem outstanding employee stock options and payment of approximately $165,000
as a retention bonus to certain officers and employees, approximately $16.8
million of the sale proceeds remained and were available for distribution to
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stockholders pursuant to the Plan of Liquidation and Dissolution adopted by the
Company.
On January 29, 1999, an initial liquidating cash dividend of approximately
$16.8 million ($2.13 per share) was mailed to stockholders of record at the
close of business on January 22, 1999. Additional liquidating cash dividends of
approximately $1.2 million ($.15 per share), $790,000 ($.10 per share) and
$950,000 ($.12 per share) were paid to stockholders of record on the close of
business on January 31, 2000, 2001 and 2002, respectively. The Company now has
no further assets to distribute and expects to have no additional assets in the
future other than cash received from the escrow account referenced above and
cash remaining after payment of all remaining expenses to wind up and dissolve
the Company, if any.
The Company expects that, subject to any claims which may be made by or on
behalf of HydroChem, the remaining escrowed funds of approximately $597,000 will
be released at such time as the Company delivers to HydroChem a certificate
regarding certain environmental remediation matters, which is currently expected
to be possible in the year 2006. During the quarter ended December 31, 2004,
approximately $106,000 was released from the escrow account to reimburse the
Company for payments made for remediation costs related to the HydroChem
property. There can be no guarantee, however, that these funds, or any portion
thereof, will be released to the Company. As escrowed funds, if any, are
released to the Company, they will be utilized to pay any unanticipated unpaid
expenses, with the remainder, if any, to be distributed as a liquidating cash
dividend to stockholders as soon as is practicable.
As of December 31, 2004 the Company had approximately $501,000 in cash in
addition to approximately $597,000 held in the escrow account.
The Company will not engage in any further business activities and the only
remaining activities will be those associated with the winding up and
dissolution of the Company. The Company believes that the remaining cash on hand
and in escrow will be sufficient to meet its liabilities and obligations until
the Company is dissolved in accordance with Delaware law.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk is interest rate risk. The Company currently
minimizes such risk by investing its temporary cash in money market funds and,
pursuant to the Escrow Agreement entered into by and among Bank One Texas, N.A.
and the Company, the escrowed funds are invested in United States Treasury Bills
having a maturity of 90 days or less, repurchase obligations secured by such
United States Treasury Bills and demand deposits with the escrow agent. The
Company does not engage in derivative transactions, and no financial instrument
transactions are entered into for hedging purposes. As a result, the Company
believes that it has no material interest rate risk to manage.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our Chief Executive Officer and our Acting Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2004 (the Evaluation Date), and they have concluded that, as
of the Evaluation Date, such controls and procedures were effective at
ensuring that required information will be disclosed on a timely basis in
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our reports filed under the Exchange Act.
The Company's management, including the CEO and CFO, does not expect that
its Disclosure Controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations
in all control system, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that
breakdown can occur because of simple error or mistake. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions.
Based upon the Company's Disclosure Controls evaluation, the CEO and CFO
have concluded that, subject to the limitations noted above, the Company's
Disclosure Controls are effective to give reasonable assurance that the
information required to be disclosed by the Company in its periodic reports
is accumulated and communicated to management, including the CEO and CFO,
as appropriate to allow timely decisions regarding disclosure and is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
(b) Changes in internal controls
We maintain a system of internal accounting controls that are designed to
provide reasonable assurance that our books and records accurately reflect
our transactions and that our established policies and procedures are
followed. For the quarter ended December 31, 2004, there were no
significant changes to our internal controls or in other factors that could
significantly affect our internal controls.
PART II - - OTHER INFORMATION
Item 1. Legal Proceedings: Not applicable
Item 2. Unregistered Sales of Securities And Use of Proceeds: Not Applicable
Item 3. Defaults Upon Senior Securities: Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6: Exhibits
(a) Exhibits:
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Registration Statement on Form S-1 filed on June
11, 1991, and incorporated therein by reference.)
3.2 Certification of Amendment of Certificate of Incorporation of the
Company (filed as Exhibit 3.2 to the Company's Form 10-K dated
September 25, 1995, and incorporated herein by reference.)
3.3 Certificate of Correction of Certificate of Amendment of Certificate
of Incorporation of the Company (incorporated by reference to Exhibit
3.3 to the Form 10-Q for the quarter ended December 31, 1998.)
3.4 Certificate of Elimination of Series A Preferred Stock and Series B
Preference Stock of the Company (incorporated by reference to Exhibit
3.4 to the Form 10-Q for the quarter ended December 31, 1998.) 3.5
Certificate of Amendment of Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.5 to the Form 10-Q for
the quarter ended December 31, 1998.) 3.6 Bylaws of the Company, as
amended, (filed as Exhibit 3.3 to the Company's Form 10-K dated
September 25, 1995 and incorporated herein by reference.)
31.1* Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1* Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant
To Section 906 Of The Sarbanes-Oxley Act Of 2002.
- --------------------
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VSI LIQUIDATION CORP.
Date: February 11, 2005 By: /s/ Donald P. Carson
---------------------------------
Donald P. Carson
Director and Acting Financial Officer
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